The guidance that the Consumer Financial Protection Bureau issued recently on marketing services agreements is fuzzy, at best. Because the bureau has "grave concerns" about MSAs, and are watching lenders' compliance closely, the strategy should be undertaken with only the most rigorous planning, documentation and oversight.
While mortgage industry experts were hoping for definitive answers on when and how MSAs are executed legally, the bureau's direction simply reinforces — though strongly — the agency's subjective assessment of these arrangements. Since decisions about MSA compliance will largely be decided on a case-by-case basis, lenders cannot expect that one case of wrongdoing will necessarily look like the next.
The CFPB remains most concerned about the reasons surrounding the creation and implementation of MSAs. Scenarios where the MSA masks either a quid pro quo for the referral of settlement services or the steering of customers toward MSA partners are particularly troublesome.
All marketing services should be directed at consumers and not at other settlement service providers. Further, MSAs that rely upon a wide range of individual performance are particularly at risk.
Lenders must also keep in mind that the fact that simply because a third party sets the prices does not preclude the MSA from violating RESPA. Payments cannot be made or kept if the marketing services were not provided.
Overall, consumer choice and opportunity are key. Parties in an MSA should clearly ensure that borrowers are fully aware of the MSA relationship and given the ability to shop for any settlement service provider. MSAs that thwart the consumer's meaningful choice of settlement service will be at risk for enforcement.
The CFPB added into their guidance an invitation competitors and whistleblowers to report companies believed to be violating RESPA.
Ari Karen is a partner at Offit Kurman.